Earlier in the week, stock-picking genius Warren Buffett made a move that shocked many investors. He bought shares in the Canadian miner Barrick Gold.
Consequently, the Barrick share price rocketed 15% in a matter of days, as many investors imitated Buffett’s play. But should UK investors follow suit? Let’s take a look at this in more detail.
Analysing Warren Buffett’s recent move
You may be wondering why Warren Buffett’s purchase comes as such a surprise. After all, the price of gold has been on a tear recently and the macroeconomic climate gives no indication of that slowing down. But the answer lies with his previous attitude towards gold.
The investing genius has long been a critic of investing in the commodity. In fact, he’s often directly spoken out against gold. Instead, he prefers pouring cash into high-quality American businesses. With that in mind, it’s clear to see why investors’ ears have pricked up at the announcement.
However, while the purchase is certainly a nod in favour of the commodity’s prospects, it’s important to note that Warren Buffett hasn’t explicitly bought gold. Rather, he’s bought shares in a company that mines gold.
It’s no ordinary company either. Barrick Gold is a titan of the mining industry, with 16 operating sites in 13 countries. The investment case is strong, and the company has good-quality fundamentals. Overall, the underlying business is solid which, in part, explains Buffett’s decision to invest in the company.
What this means for UK investors
Having considered Warren Buffett’s recent move, let’s take a look at the implications for investors situated in the UK. Given the uncertain economic environment, rising US-China tensions and the prospect of a second wave of coronavirus infections, share prices are likely to remain volatile for the foreseeable future. This bodes well for the price of gold to continue to thrive.
However, the commodity doesn’t pay a dividend and its price appreciation is uncertain. Therefore, investors may feel more comfortable approaching gold in a different manner. For instance, by gaining exposure through a mining company, which could even prove to be a superior way to generate favourable returns in the long run.
What’s more, with a vast array of gold mining stocks listed on the London Stock Exchange, British investors are spoilt for choice if they want to emulate Warren Buffett. When pressed for my top pick though, I’d throw my weight behind Polymetal, a top-10 gold producer that’s outperformed most of its peers over the years. With nine gold producing mines located across Russia and Kazakhstan, the company appears set to prosper over the long term.
Alternatively, you could place your money in a fund that’s exposure to most of the best gold mining stocks out there. My go-to would be the iShares Gold Producers UCITS ETF, which has a 9% weighting towards Buffett’s chosen pick, Barrick Gold.
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Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.